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Analysis of CSU

06/20/12 at 05:49 AM

Armed with the pen of Junius, I hope to shed some light on the tissues of falsehood and inconsistency as will satisfy the inquiring, and to that point, here’s some random house-cleaning from a Father’s Day weekend of thought.  

CSU:  The background 

  • We are on the front-end of an enthusiastic community conversation as regards the Colorado Springs Utilities Company (CSU).  The conversation began with the election of the Strong Mayor and that he had the temerity to ask difficult questions and challenge previously unchallenged assumptions.  At the core of the conversation is a common thought that the utility company has been elitist among city-owned enterprises, it has not previously been open to a high degree of transparency and scrutiny, and there is hidden treasure buried in the vault.     
  • CSU is a $1.1 Billion enterprise that formerly reported to the City Manager (under the previous form of government) until an alleged personality conflict led Mayor Bob to separate CSU from the chain-of-command and put it “on its’ own”.  Now, it’s ostensibly supervised by the 9 member city council, that while attending once-a-month board meetings, dawn rose colored glasses and make weighty decisions on topics which it normally has little or no subject matter expertise.

Board Members approve CSU’s budget and the plans of many departments.  It listens to reports on water supply, electric supply and hear how “every question it asks will likely, negatively impact CSU’s bond ratings” (which by extension of the argument, veils the threat of an automatic rate increase in Average Joe’s monthly utility bill).  The board approves borrowing in the millions and construction projects in the billions. 

  • The board is well meaning but does not typically possess the training to handle a Billion dollar organization, therefore, a good question is, “Is the company without legitimate supervision?”

 CSU:  Governance

  • While I believe we have fielded an exceptionally gifted Executive Leadership Team; that I’ve never been on a board of a Billion Dollar Corporation leaves me with no reference point to validate that belief. 
    • The elephant in the living room is again the question of supervision. 
      • Is the neophyte player able to coach the seasoned veteran?  
      • Do we need to perform a strategic review and develop a new strategic policy?
        • Is that we don’t have a readily discernible strategic plan an indication that we don’t think strategically?
        • Is that we don’t have a readily discernible strategic plan an indication of weak executive leadership?

CSU:  Executive leaders

  • At the municipal government level, what is the proper role of executive leadership?
    • Are they merely general managers?
      • Should they be strategic thinkers?
      • Should they have well articulated alternative plans to take advantage of strategic opportunities and combat strategic peril?
      • Who should supervise the executive leadership team?
        • The current 9 members of council?
        • Should there be a new form of supervision? 
          • Board appointed by the Mayor with appointments ratified by Council?
          • Publicly elected board directly accountable to the rate payors?

CSU:  Drake

  • Do we need Drake?
    • What is our current system-wide electric generation capacity?
    • What is the generation capacity driven from Drake?
      • What is our overall need for electric generation?
        • Currently?
        • For future development opportunities?
        • Should we decommission Drake?
          • Has Drake passed its estimated useful life?
          • What is the annual investment to keep Drake operating?
          • What are the costs of decommissioning Drake?
            • If we decommission Drake, what are replacement alternative-energy generation sources?
            • What are the costs of providing alternative energy production?
            • Is potential development of the land along I-25 & Fountain Creek a legitimate reason to decommission Drake?
              • If development t is the issue, are there other development options that are less costly?
                • “No Man’s” land
                  • 31st Street to Ridge Road
                  • Annexation, condemnation and market-driven redevlopement of this gateway
    • Prospect Lake area condemnation and infill-redevelopment
      • Incorporate USOC training facility, MHS, Memorial Park & Prospect Lake
      • Incorporate the downtown
        • Create special tax incentives for small business to infill develop
        • Create either, free or discount, tap fees for new development
          • Pay ½ now and pay ½ over time
          • Coal vis-à-vis renewable energy at the Drake?
            • Renewable energy is not as reliable as coal.
              • Renewable energy is tax subsidized.
              • Renewable energy needs storage.
  • Coal costs lessthan renewable energy.
    • Coal provides a safeguard by keeping our energy supply diversified.

CSU:  The Neumann Scrubber System 

  • The CSU Board has been asked to weigh-in on the $240,000,000 Neumann Scrubber System. 
    • The Neumann Scrubber System is a technological marvel that promises to keep CSU in EPA compliance at a discount. 
      • In theory, the Neumann System sounds good because “Who doesn’t like a bargain?” 
        • In reality, the Neumann System is not without risk. 
          • The system has never been proven to work on the currently planned scale. 
    • Recall the admonition from Professor Harold Hill trying to get his throng of adolescent musicians to play never before played musical instruments, “think boys; think!” 
    • The Neumann system is planned for roll-out at the Drake (visible from I-25 in the downtown).
      • CSU has $40,000,000 Million (sunk cost) at the Drake and expects to spend another $80,000,000 to finish the project – (plus another $120,000,000 at Nixon.)
        • When finished, what is the impact on rates?
        • Would electric bills increase with the installation of the Neumann System?
          • How much?
          • Regulations say we have to comply with the clean air act.
            • What are the exact regulations and what is the compliance?
            • Do we need to be in EPA compliance?
            • What drives us out of EPA compliance?
            • Will EPA allow CSU to be non-compliant with our coal plants (no need for Neumann in that case) if we have a long-term decommissioning plan?
              • Will the Neumann System keep us in compliance?
                • For how long?
                • Is the Neumann System a stop-gap measure merely to satisfy current federal mandates? 
                  • Where would we be without Neumann vis-à-vis compliance?
                    • Have other alternatives been investigated?
                    • Have other vendors had a chance to bid on the compliance opportunity?
                    • With Neumann Systems, CSU is acting as Venture Capital Partners in the process.  It has extended millions (up-front) on the wings of hope & prayer that it may work. 
                      • Who made the policy decision that public money should fund R&D? 
                        • Were the rate payors asked if they wanted to be in the R&D venture-capital business?
                          • Were the rate payors asked if they’d rather have lower utility bills? 
                          • Is it legal for a public utility company to be an R&D partner? 
  • If we’re in the venture capital business, did we negotiate the best deal for potential profit that we could? 
    • Can we renegotiate a better deal now that we know more about the product? 
    • Can we renegotiate a better deal that rewards us for the risk? 
    • Can we get at least a 50/50 share of profits?

As we move forward with these very large conversations, the question is “Who will lead the conversation?”  The concurrent other big question is, “Who will field the team to select the team that will lead the conversation?” 

The ‘team to select the team’ must be broad based and from both sides of the aisle.  [You’ll recall - with the MHS situation, there was an attempt to stack-the-deck in favor of MHS’s non-profit so the deck would align with the consultancy group assembled by McEvoy, et. al., all of which was designed to deliver a preconceived outcome, the delivery of MHS to McEvoy’s team.]  We must learn from those mistakes and not repeat that process. 

If we’re going to move forward with strategic investigation, questioning and planning, it’s likely going to be a long-slog and that in the most likely case, Drake will be wrapped around a long-term decommissioning plan (decommissioning over years, not months.)  And in that conversation, I support a holistic approach with broad community involvement with honest information coming from CSU, with no preconceived expectation of an outcome. 

Of course, at the end of the day, the Board must have the knowledge and nerve to make a decision. 

Pay attention.  Be informed.  Make a difference.  Keep it real.